If an American lives in one country (e.g. Spain) while working for an American startup and being paid in US dollars, should he pay taxes in the US or Spain, or both?

In Europe the national health care systems are tied to paying taxes in a country. How are nomads dealing with health insurance?

I'd really love to be completely above board w/r/t taxes and have health insurance, but all the advice I find online either sounds made-up or is "consult with your accountant". If I had an accountant I wouldn't be searching for this info!

This depends on how nomadic you are, what the laws of your host nation are, whether you're prioritizing tax burden or access to services, etc.

1) US citizens have unambiguous legal requirement to file and pay US taxes wherever you live.

2) The Foreign Earned Income Exemption will excuse you from taxes on the first 90k or so of profits, though not self-employment taxes. This makes it advantageous for many Americans to file and pay US only. This may or may not be kosher under laws of host country -- treatment of immigrants with unique situations varies WIDELY, sometimes even between clerks at same office.

3) You get a dollar for dollar tax credit against US taxes for foreign taxes. If you live in a high-tax country like most of Western Europe or Japan, you may choose to file and pay locally then take the foreign tax credit to extinguish your US liability. This is often useful for services/immigration status/etc. Foreign Tax Credit can't be double-applied over FEIE, so in practice only matters if you have high income or you generate capital gains (not subject to FEIE generally).

4) Read those tax treaties! Get competent pro advice! I overpaid US taxes by $10k prior to finding a single piece of paper existed that excuses Americans in Japanese Social Security from US self-employment tax. Front-line clerks in both countries were ignorant of it. (Edit: On the chance that there's one other self-employed USian here who or on a future Google search wondering how to demonstrate status under the US Japan Social Security Totalization agreement, where that status means because you're paying Japanese social security taxes either personally or through your employer then you don't have to pay US self-employment taxes or social security or medicare, the answer is ask for a J/USA 6 form from your local Japanese social security office. If they don't believe that exists, they're wrong -- have them call the International Affairs Desk at the (national) Social Security office -- we literally had to get word directly from the mouth of the 年金局の国際年金課長.)

Relating to #3, if you expect to be overseas long term and you are in a situation where foreign tax credit will cover your US tax liability, it can be advantageous to use the foreign tax credit instead of the FEIE even if your income is less than the ~100k FEIE limit. This is because the unused credit can be rolled forward and used as a buffer for cases where you do something tax-advantaged in your country of residence which is not honoured by the IRS. Most commonly this could be capital gains on the sale of a primary residence which is tax-free in many countries but only partially so in the US. But there are many other such possibilities, like retirement savings not covered by totalization agreements, special treatment for redundancy payouts, lump sum retirement payments, etc. There is this general idea that tax agreements eliminate double taxation, but they only do so imperfectly because the legislation is tailored for people temporarily working overseas, not people who make their home overseas.

These cases are perhaps not relevant to the typical digital nomad when they set out, but things happen and you may choose not to return to the US. In those cases, it is good to have chosen to file your taxes in a way that maximises future choices.

In my view the FEIE should only be used if you KNOW you will go back to the US soon and want the easier filing it provides, or if your foreign tax credit is simply not enough.

> I overpaid US taxes by $10k prior to finding a single piece of paper existed that excuses Americans in Japanese Social Security from US self-employment tax.

I got hit by that too. It's the same (or similar) in Italy: if you are self-employed, you don't have to pay into the Italian equivalent of social security. If you work for a company directly, you do. Most accountants here do not know this, nor do most US accountants.

However, I cannot minimize how important an accountant is. Your last sentence seems to indicate that you think this is a joke. First, the IRS is not a laughing matter. Second, accountants are professionals and tax law is not the kind of thing you can pick up on a forum someplace.

Finally, the IRS filing deadline is April 15, you do not have an accountant yet, and it strikes me that you just started thinking about US tax. You need to get on this right away because again, ignorance is not an excuse for non-compliance.

no it isn't. expats have an automatic 3 month extension to June 15 and an optional extra extension if applied for (and if he has no tax to pay to the IRS, then there aren't really any fines for missing the said deadline either. (I missed mine last year... oops. but am under the 90K threshold mentioned)

It's the only country in the world that forces its citizens to do so (besides Eritrea), which is why record numbers of people who don't live in the US are giving up their US citizenship.

If you actually have residency in some country, then you probably need to pay taxes there. But if you're actually being a 'nomad', are you going to be anywhere that long?

> If I had an accountant I wouldn't be searching for this info!

Find one, then; ask your friends for recommendations. If you are a US citizen, then there is likely a tax treaty between the country you are a resident in and the US. You need an accountant that knows about this. I'd be happy to recommend one for Italy.

From my understanding, please correct me, is that America(tm) requires that you never _save_ money by leaving the country and working somewhere else.

Say your US tax rate is 27%, you are working in Canada and your tax rate is 32%, you pay Canadian taxes first, then file with the US which charges you nothing.

If you are working in a place with a 5% tax rate, you will owe the US the difference. When you are a US citizen, your global minimum tax rate is your US tax rate. You can never save money on taxes by leaving the country, only by giving up citizenship.

You can save money on taxes by living somewhere with a lower cost of living, make less, spend less.

Sort of. There's the Foreign Earned Income exclusion that allows you to deduct $100,800.00. There are also deductions for housing costs if you live overseas. If your income exceeds that (and other deductions), then you may have have to pay taxes on the excess income. This depends on whether or not the US has a tax treaty with the foreign country and which country has higher tax rates.

In the end, it means you have to earn quite a bit to have to pay any US taxes when living overseas, but it can happen. The big hassle is having to file returns no matter what. It can end up being pretty complex.

There's also the problem of the USA imposing FATCA reporting requirements on foreign banks who have American customers. This can make it a lot more work for an American to sign up for a foreign bank account, and reportedly some banks are outright refusing any customer who walks in with an American passport because they don't want to open their books to a foreign entity.

I would beg to differ on the saving money on taxes. I live in France, I have the $96,000 foreign exclusion, so the first $96,000 I make is US-tax free. I have to pay taxes everything above that no matter where I live.

The following is just for informational and entertainment purposes only.

So, if I were to hypothetically make $200,000 per year, I would pay US taxes on roughly $104,000 per year, instead of $200,000, plus I get to take deductions. So If I have $20,000 in deductions, I pay taxes on $84,000.

When I file my French taxes, my income justification is based on my Adjusted Gross Income on my US tax return since I don't make any money from French-EU companies. If I make $200K, have $96K excluded because of the foreign income exclusion, then $20K deductions, my AGI is roughly $84,000. So the $84,000 is my income in terms of France. Now, I get to then take whatever French deductions we are eligible for and pay taxes on whatever the reminder happens to be. Let's say that remainder is $80K. I now pay French tax on that $80K, which would be taxed at an effective rate of 22% (the French system is similar to the US in that each "band" of income it taxed at a higher rate with the top marginal rate being 45%.) So that's roughly $17K in taxes, which are then dollar-for-dollar deductible from US taxes owed. (That dollar for dollar deduction is based on the US-France tax treaty, so that might not apply to other places.)

Let's say the approximate effective tax rate of $84K is roughly 22%. That means I'd owe $17K to the US, but I paid $17K to France, so I pay zero US taxes under this scenario and overall I paid $17K in taxes on $200K in income, which works out to an 8.5% tax rate. This of course would not apply if you earned income from within Europe.

If you want to live in the Bahamas and you have an adjusted gross income of $96K or less per year, you'll pay zero total taxes. Same for Bahrain, Brunei, Kuwait, British Virgin Islands. But you also have countries that don't tax your worldwide income, only income earned within that country. So if you're clever and do your research, you will absolutely save money on taxes living outside the United States. You also get the bonus of not paying any state income taxes either. Given the EUR/USD weakness at the moment, there really hasn't been a better time to live in the EU if you're making US dollars. However, the tax regimes of each country are often very different, so do your homework.

There's a big chance that When I file my French taxes, my income justification is based on my Adjusted Gross Income on my US tax return since I don't make any money from French-EU companies. isn't the right way to interpret the source of your income.

(I'm not offering that as advice, I'm pointing out that those offices are relying on a characterization that you and whoever is paying you are making. A US corp with all of its operations in France probably doesn't qualify as a non EU entity...)

Can you describe an actual problem with his outline? I think it is very good to get this sort of first hand advice. In my experience it is very hard to find an accountant that understands this stuff well.

I'm not a tax lawyer, but since I don't make any money from French-EU companies probably isn't relevant to French income tax rules.

If you live and work in a place, the rule of thumb is that your earned income will be taxable there, regardless of who is paying you.

(my brief understanding is that France does have an exception for income that is sourced from the US. But this means things like investment income. Work for hire performed in France for US companies would not be attributable to the US under such a rule)

I'm more interested in the FEIE myself. I'm traveling Europe, UK, and Morocco in a motorhome, earning income from an app along the way.

I think this means that as I'm < 3 months in any one country I do not need to pay taxes in any of them. And for the US I can claim the foreign earned income exclusion as I'm out of the country > 330 days of the year.

It's complicated, but under a certain amount of money, what you write is generally true. It's still a complete load of bullshit, as it requires you to spend time and energy and money dealing with something you shouldn't have to.

When the US Marines come rescue me from my house in the south of France, I'll write them a check for the evacuation. Until then they can f'off. My American passport doesn't give me any advantages overseas, in fact, it gives me far less advantages than a Swiss passport would.

I pay more for visas (thanks to visa reciprocity agreements,) I have more difficulty opening bank accounts (assuming I can even open one at all,) AND I have to file taxes based on citizenship and not residency. The US is one of the few countries in the world that have citizenship-based taxation. FATCA is also an egregious breach of privacy. The US strong-arming countries into reporting on ALL bank accounts held by Americans. The person only has to declare them if the balance exceeds $10,000 at any point during the year, however the banks are still obligated to report them. My little boy who was born in France, but he's an American citizen by birth, has never been to the US and yet even his little bank account (opened by the bank with 40 Euro as a gift,) gets reported to the US government. He's six months old and already in an IRS database. If he made phone calls or used Facebook, he'd likely be in an NSA database as well.

To get slightly political here, if ISIS were to kidnap me, I'd be dead. Four French journalists -- Nicolas Henin, Pierre Torres, Edouard Elias and Didier François, who were kidnapped in Syria last year by ISIS -- were released in April.

One of those hostages, Henin, had been held by ISIS alongside James Foley. Henin is free, and Foley is dead. The only difference between the two: their passports.

Don't get me wrong, the US is my country. I fought for the US as an army officer (2003-2007). However, patriotism is more than waving the flag, it's calling out the nonsense when necessary.

> To get slightly political here, if ISIS were to kidnap me, I'd be dead. Four French journalists -- Nicolas Henin, Pierre Torres, Edouard Elias and Didier François, who were kidnapped in Syria last year by ISIS -- were released in April.

I wasn't going to mention that, but yeah, it seems like countries like Italy and France pay up to get their people released. Let's please, please not have the discussion over whether that's in general a good thing or not, but if it were my own neck on the line...

Actually, you can be resident for tax purposes in Spain and be required to pay taxes in both countries. That said, you'll get credits for the dual taxation, so it's not as bad as it sounds. However, if you're managing to avoid being tax-resident in Spain, then you've really just the IRS to deal with.

If you ever fancy renouncing your US citizenship, then you might be able to be not tax-resident anywhere... (see five flag theory: http://en.wikipedia.org/wiki/Perpetual_traveler) Or if not completely avoiding tax residency, you can at least minimise your exposure for the taxes you do need to pay.

Also, tax and healthcare mostly have nothing to do with each other... It's mostly your residency status (which is totally unrelated to Tax residency oddly). You can be resident in a country for tax purposes, but still not be eligible for Heath care or other social services...

I'm an American expat, 15 years in the EU, and 10 years working cross-border within the EU.

The IRS is very clear that you have to file with them regardless, though you may not have to pay anything (due to FEIE or similar).

What you haven't mentioned is your legal status in "Spain." Are you on a tourist visa, or do you have legal residency? Do you have a work permit?

If you are in Spain under a tourist visa, then you cannot legally be employed in Spain, which means you have no tax duty in Spain. If you happen to be employed by some US company and you happen to be doing work for them while you happen to be sitting in a cafe in Barcelona, well, you are in a legal grey zone-- you do not have the right to work in Spain. You cannot "come clean" with the Spanish government, as you have no right to work there without the proper residency permit. The best you can hope for is they ignore it, the worst is they prosecute you for visa violations.

European health systems are tied to legal residency, which can (but does not always) include some duty to pay taxes. If you have a Spanish residency permit, then you have rights to Spanish health care.

If you also have a Spanish work permit, the next question is if your employer is registered as a Spanish employer (most US startups are not). If not, again there are problems which make it difficult for you to pay income taxes in Spain.

Note that I'm only talking income from your employer. Interest/dividends/capital gains are a whole nuther thing.

I'm guessing you are on a tourist visa. Enjoy your time, don't stay longer than 90 days, and buy private insurance. Also, if you try to stretch the 90 days by a quick trip to England, this might only work the first time.

This was a pain for me for years when I was a nomad. The US and North Korea are the only two states that tax citizenship instead of residence.

Since US taxes were unescapable, I eventually went for tourist visas, moving every 3 months. The host country does not consider you taxable. I used this in Spain in particular. It worked out fine. I had a spanish lawyer and a spanish accountant, both were of the opinion that it was above board as long as I took longish trips every few months. As long as you're still working remotely and not using social benefits, there's no real legal category for you yet.

There is private health insurance explicitly designed for Americans living abroad. It's dramatically better (and cheaper) than regular american health insurance. Mine, for example, was $1700/year for 100% coverage outside the US and an extra $2900/year for 80% coverage if I wanted it active in the US too.

Most accountants only know B&M, M&D, and SBOs. Accountants who know international tax laws, are seldom seen in the wild, but mostly employed as specialist in big companies.

In Germany tax office is required to answer every question. They wont tell you how to reduce your taxes, so you need to ask the right questions. But you have a signed paper afterwards, that you can show, if your books are checked 10 years later, telling that a tax officer claimed you did it right.

I can only tell the other way round:

If you are a German, and have an LLC in Tennessee, then this LLC is a path through taxed company, so you have to pay US income tax on it. Germany and US has a double tax agreement, so I do not need to pay taxes on the US income, but the US income is added to my German income to calculate the percentage of my Germany income that I have to pay as taxes.

Its now a bit more complex for US citizen in Germany. You have to file your US taxes till 15. Juni, if living outside US at IRS Center, Austin, TX, 73301-0215, USA. And your German taxes 10th of Mai. I advise to file the German taxes as early as possible, if self employed. You dont need to worry about this, if you are employed in your own company with payroll tax. Just ensure that your German tax return is ready, before you need to file your US tax. The double tax agreement between US and Germany will cause IRS to look at German taxes, whine and laugh, because German taxes are higher, and tell you that you need not to pay additional taxes in US.

My advise is to ask IRS.Frankfurt@irs.gov to confirm this!

Coming back to paying low taxes, and getting good health care same time with an US/Germany combi: Regardless if you are German or US citizen, imho the best combination is being employed at your own uGmbH in Germany, for only €1000/month. The uGmbH is not funded and owned by yourself but by your LLC in US that owns the intellectual property of your business. File invoices from your LLC to your uGmbH regulary. Your LLC will have nearly no costs. File US taxes as early, and German as late as possible in this case. So you benefit from low US income taxes, and an incredible low health care and unemployement insurance based on your low German income. Add a PLC in Estonia if you need a tax free money sink.

Optimizing Spain/US might be totally different. But you likely will be paying US tax as happy as I do - even if I'm not a US citizen ;-)

Most probably there is a treaty to avoid double taxation between both countries.

The general rule is IMO (I'm not an accountant): You either are employed in the US and pay US taxes or you are a company or individual in Spain offering services to a US company, then you are taxed in Spain. The latter means you have no employment contract but a consulting contract.

I am European but I work also for American companies as consultant and as such I _have to_ pay taxes in my country of residence (Luxembourg).

The good thing in my case is you avoid VAT, the subjective thing (good or bad, depends on your perception) is that you are subject to the obligatory social security deductions ranging from 25% to 40% (in the countries I know).

Taxes must be paid as well if you pay social security but they shouldn't play the big role unless you earn big (>= 8k E per month)

Whether paying social security is good depends heavily on your country of residence and it is kind of up to you. I'd preferably not pay social security in Germany but in Luxembourg it's tolerable.

> The general rule is IMO (I'm not an accountant): You can choose to be employed in the US and pay US taxes [...]

I'm not an accountant either, but I'm pretty sure any European nation's tax office would take a dim view of this point of view. If you do the work in Spain, you'll need to be taxed in Spain, especially if you're not trying to fly under the radar.

Partially true, you will have to pay your income tax in Spain, except (cue european tax treaties) when your socio-economic life lies in a different country (e.g. you have a gym membership, cellphone and house in the Netherlands); and then again it depends on the treaty between the two countries.

On a related note VATMOSS came in in January 2015 which means if you're selling to Europeans then you, the business/seller, have to account for VAT (ie sales tax) on "e-services" in the country of the purchaser. That's right if you sell online to people in any European country then by law you have to deal with every different tax system in Europe. [There are exceptions! It's on e-services not physical goods or training involving human interaction]. Oh, and FYI, under common market legislation you can't refuse to sell to any European country (if you're in Europe) so you can't choose to make e-sales only to your host country to avoid facing VATMOSS.

Now there's a question of jurisdiction for USA companies - but I gather that under treaty obligations the law is relevant.

VATMOSS is a scheme to handle the payments to the different tax offices.

Just felt that if you're in the reverse situation of selling to Europe you'd want to factor this in.

Cross-country tax issues can be challanging, because they are changing and just a few people understand them completely. The most important factor in your case is "center of living", which is defined very broadly, but for ease of understanding this is the country where you spend 183 or more days/year and where your family lives and where you have most friends and most private social life. This is where you will normally pay your personal taxes... if you pay some taxes in US already, then Spain will most propably deduct them and you will need to pay only the difference between spanish taxes and US taxes (under assumption there is "double tax treaty" between US and Spain).

Many accountants tend to avoid trying to give you advice on cross border tax issues, mainly because they aren't qualified to give you proper advice and it can be so complex that even the authorities don't understand it. So, you sometimes have to figure it out for yourself, and the best way to approach it is to look at how the authorities in each jurisdiction will see it from their perspective. If you work and pay Spanish taxes, I assume you have the right to work in Spain too (e.g. EU citizenship or spouse of an EU citizen). In countries with strong government health insurance, private insurance is often not that expensive.

My step mother renounced her american citizenship because she has lived (permanent residence) and worked (clients and income) in Canada for most of her life and still had to worry about American Taxes (maybe not pay but file).

There are two taxes that you are talking about: income tax and Social Security tax.

First, income tax.

Because you live in Spain, you must pay income tax to Spain on your income. The source (a U.S. company) is irrelevant. You are a Spanish resident performing services in Spain.

Because you are a U.S. citizen you must pay income tax to the USA. The fact that you are living in Spain is irrelevant.

There are two ways to ease the pain:

- Foreign Earned Income Exclusion. See Form 2555 to determine if you qualify. If yes, the first $100,800 of earned income (be as careful with your definitions as you would be with the programming language of your choice) is not taxed by the USA, thus making the first $100,800 of earned income taxable only by Spain. You must file a U.S. tax return to get that benefit.

- Foreign Tax Credit. A dollar of income is at risk of tax twice: once by Spain, once by USA. The USA gives you a tax credit (see Form 1116) for tax you paid on that dollar of income. It isn't high precision math, but you can bludgeon the numbers to a close enough result.

- Use Both. You can use both. Use the Foreign Earned Income Exclusion for the first $100,800 of earned income, and the Foreign Tax Credit for earned income above that.

Second, Social Security tax.

Because you are working in Spain, you are supposed to contribute to the Spanish equivalent of Social Security.

This allows you to contribute to the U.S. system and not the Spanish system.

This exemption is typically good for 5 years with an option to extend to six years. Then you have to start contributing to the system where you live -- they figure if you've been camping out that long in Spain you must really be a resident there and therefore should contribute to the system.

Third, getting covered by the Spanish national health system.

Don't know. I did some stuff with Spain a little while ago and my memory is that if you contribute to the Spanish social security system you get the medical coverage and if you do not contribute to the Spanish social security system you don't get the medical coverage.

Fourth, what are you?

You are ambiguous about your relationship with the American startup. Are you an employee or an independent contractor? Either way the result should be the same (in the long run) but the paperwork required will be different (in the short run).

There are very few people who know this stuff well. The ones that are out there tend to be (a) overworked; and (b) expensive. Sorry. Blame your government for emulating the Byzantine

Empire or medieval theologians for the complexity and burden imposed on you. If you do your tax work properly, you will probably only pay tax in Spain and pay nothing the USA. And to get there you will pay several thousand dollars a year in accounting fees.

My suggestion is that you practice Extreme Minimalism in your business affairs because you are far better off if you optimize for minimum tax advice expense first, then minimize tax second. :-)

Sixth, blowback

Let me just say that the biggest single part of our international tax law firm (and international tax is the ONLY thing we do) is expatriations. U.S. citizens giving up their citizenship.

This is especially true for Americans abroad and doubly true for American entrepreneurs abroad.

Disclaimer/warning shot/preemptive strike/we had to destroy the village in order to save it/etc.

I am an international tax lawyer. This is not legal advice to you because we've never met and I have no idea what is going on in your life. You'd be a damned fool to make important legal and tax decisions based on stuff you read on some random discussion board on the internet.